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Thursday, March 30, 2017

BFS for Columbus Gold's Montagne d'Or Fuels M&A Speculation

The release of the bankable feasibility study for the JV Montagne d'Or gold project in French Guiana, with Columbus Gold in partnership with Nordgold, has experts speculating on buyout prospects.

A bankable feasibility study on Montagne d'Or was released on March 20. Nordgold needed to deliver the study in order to earn in a 55.01% share of the project. Columbus Gold Corp. (CGT:TSX; CBGDF:OTCQX) maintains a 44.99% share. Sector experts immediately began discussing buyout scenarios.

Analyst Michael Curran of Beacon Securities outlined the study, noting, "as part of its earn-in of the project, Nordgold SE (not covered, now private) delivered a bankable feasibility study (BFS) on a 2.75 MMoz open pit reserve, to take its interest to 55.01% (CGT 44.99%). The BFS outlines a 12,500tpd open pit mine capable of producing 237Koz/yr over the first 10 years of a 12-year mine life. Initial capital to build the mine is forecast to be US$361MM (net of tax credit refunds), well below our US$450MM estimate. AISC of US$749/oz (Yr1-10) is better than our US$786/oz estimate."

He also asked if this study opens the M&A Window. "With the BFS completed, and Nordgold's ownership solidified, we expect Nordgold to review its commitment to project development. We maintain our view that Montagne dOr would likely be better served with "one master," thus expect either Nordgold to look to acquire CGT's minority interest and build the mine itself, or for the partners to solicit interest in selling 100% of the asset to a third party," opined Curran.

"We view Columbus Gold as an attractive speculative play for development success in French Guiana, with investors receiving exploration success potential in Nevada for free," Curran concluded.

The relatively low internal rate of return (IRR) is a concern to experts, although they noted that there are mitigating factors. James Kwantes, editor of Resource Opportunities, wrote in the March 22 issue that "Montagne d'Or's after-tax IRR in the Feasibility Study dropped to 18.7%, down from 23% in the July 2015 PEA. However, there are several opportunities to enhance economicssome of them inexpensiveand Columbus is cashed up to undertake those."

"I spoke to Columbus CEO Robert Giustra after the NR was issued," Kwantes stated, "and he said Columbus has already identified ways to optimize the FS and bump up the economics, over different timelines. In the near-term, there will likely be some improvements in the FS technical report that's due within 45 days, he said. Columbus is also formulating a 4,300-metre, US$1.5-million infill drill plan that could add an extra 180,000 ounces, taking the after-tax IRR above 20%."

Kwantes also speculated on M&A options, noting, "There are several ways this could go, although the two likeliest scenarios are a buyout of Columbus' interest in the project by Nordgold or a sale of the entire project to a third party. Majors operating in the area include Newmont and Iamgold, and the FS puts Columbus on a short list of junior miners with high-quality, 5-million-oz deposits."

Bob Moriarty of 321 Gold, wrote, "The feasibility study goes a long way to making the interests of Columbus Gold and Nordgold align in a good way. Nordgold has earned their 55.01% interest. The study reveals the project has an NPV of about $500 million CAD with a twelve-year mine life of almost 3 million ounces production. While the IRR of the project appears low at 18.7%, there is an additional 1 million ounces of gold in the inferred category within the existing pit that can be turned into reserves with more drilling."

Moriarty also stated that "this project was exceptional before the BFS. It's better now. The numbers are only going to improve. If I use a figure of 4 million ounces of gold and $100 an ounce USD, Columbus Gold should be worth about $1.50 to $1.75 a share for their 45% of the Paul Isnard project."

Moriarty also speculated that there were three possible M&A options. The first is "Nordgold buys out Columbus Gold's 45% interest and puts the project into production." The second is "another major comes along and either buys out Columbus' interest in Paul Isnard or buys out both Nordgold and Columbus." And the third possibility is a "bidding war starts and either Nordgold or a major or two majors get into competition for the project."

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Columbus Gold Corp. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor's fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
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